Health Savins Account ( HSA )

What is an HSA or Health Savings Account and how can I use it to my benefit?


A Health Savings Account (HSA) is a tax-free savings account where funds are to be used specifically for expenses related to one’s health care, or the healthcare of qualified relatives. Why is this important? Because based on your tax rate this could offer huge savings. From an employer perspective, this opens up the door to offer healthcare plans that include higher deductibles and thus save more on the premiums you pay on behalf of your employees. In short, it keeps more dollars in your pocket.


Because many people are not aware that premiums are directly related to deductibles, employers will often hear the concerns of such by employees, over higher deductibles, when it comes to their health care coverage. Understanding Health Savings Accounts (HSA’s) gives an employer the opportunity to explain to their employee how having such a plan actually not only reduces their costs but also helps them in being a more proactive user of their healthcare plan. Having a high deductible health plan (HDHP) paired with an HSA drives greater accountability and helps the user better understand the true costs involved in the health care for themselves and their family.


The term high deductible health plan (HDHP) sounds ominous and negative. The truth, however, is that any plan that has a deductible as little as $1,350yr for an individual qualifies. Most would agree given the cost of health care and the opportunity to offset premiums that this fee really is not “high” at all.


Now consider this added benefit. Because one can continue to roll over their HSA from one year to the next, this empowers the individual to decide just how much they want to add to their HSA. For individuals who are active in their healthcare decisions and maintain a healthy lifestyle, this affords them the opportunity to place into savings their maximum deductible and then safely quite contributing later yet still gain the ongoing advantages of lower premiums.


According to the IRS, one may invest in their Health Savings Account (HAS) up to $3,500yr or $7,000 for them and their qualified family members. For individuals 55 or older the IRS provides a catchup allowance of an additional $1,000.


So what can an HSA cover? The list is actually quite extensive and in some cases will even cover things that may not be included in one’s healthcare plan. For example, some healthcare plans may not include things like vision, dental or hearing aids. Under an HSA all these may be covered. As long as the expense meets the IRS’s definition for a “qualified medical expense” one can use their health saving account to cover it. Common things like doctor visits, prescription drugs, lab tests and more. Specifically, according to the IRS, a qualified medical expense is:


“Medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and for the purpose of affecting any part or function of the body. These expenses include payments for legal medical services rendered by physicians, surgeons, dentists, and other medical practitioners. They include the costs of equipment, supplies, and diagnostic devices needed for these purposes.


Medical care expenses must be primarily to alleviate or prevent a physical or mental disability or illness.”


The term high deductible health plan (HDHP) sounds ominous and negative. The truth, however, is that any plan that has a deductible as little as $1,350yr for an individual qualifies. Most would agree given the cost of health care and the opportunity to offset premiums that this fee really is not “high” at all.


Interestingly and how one can really use the law to their advantage is in how the IRS defines a qualifying relative. As we age often times, we are in a position where we are also taking care of aging parents and grandparents. Along with age comes additional costs related to the aging process. Because many of us find that we are picking up the additional medical costs of aging relatives that their insurance may not cover this gives us the perfect opportunity to take advantage of the HSA system and assist with medical costs for such qualifying relatives also pre-tax. For those who take the opportunity to maximize and grow their HSA accounts over time, this can, in turn, mean saving thousands of pre-tax dollars over the long term.


An HSA is probably sounding really great about now. You are probably wondering, just how far does this “qualifying relative” reach? It is actually very broad. According to the IRS, a qualifying relative is:


a. Son, daughter, stepchild, or foster child, or a descendant of any of them (for example, your grandchild),

b. Brother, sister, half brother, half sister, or a son or daughter of any of them,

c. Father, mother, or an ancestor or sibling of either of them (for example, your grandmother, grandfather, aunt, or uncle),

d. Stepbrother, stepsister, stepfather, stepmother, son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law, or

e. Any other person (other than your spouse) who lived with you all year as a member of your household if your relationship didn't violate local law


To learn more about HSA’s and IRS qualifications click here: https://www.irs.gov/publications/p502#en_US_2017_publink1000178947


To learn how we can help your business and employees take full advantage of the great benefits that come along with Health Savings Accounts (HAS’s) contact us here using the form below.

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